Monthly Archive for March, 2009

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MARCH 2009 BAD FAITH CASE
THIRD CIRCUIT UPHOLDS BAD FAITH FAILURE TO SETTLE CLAIMS BASED ON ADJUSTER'S OWN ADMISSION OF UNREASONABLE CONDUCT IN NEGOTIATIONS (Third Circuit)

Published on March 14, 2009 in Claims Handling Procedures. Closed

In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor.  The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment.  On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000.  The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.

The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbers

between $750,000 and $2,000,000.  The doctor himself had wanted to settle.

Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict).  Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.

On the bad faith failure to settle claim, the Court looked to the seminal decision in Cowden v. Aetna Cas. & Sur. Co., 389 Pa. 459, 134 A.2d 223, 229 (Pa. 1957), observing the insurer’s fiduciary duty in weighing the insured’s interest no less than its own in evaluating an exposure to an excess verdict if the case goes to trial.  Likewise, the Bad Faith statute, 42 Pa.C.S. § 8371, can be invoked to argue a bad faith failure to settle.  The trial court had instructed the jury that:  “There must be an expressed willingness on the part of the third party, the plaintiff in the underlying litigation, at some point in time, to accept an offer of policy limits.” As the carrier’s $200,000 combined with the CAT Funds’ $1,000,000 would have settled the plaintiff’s demand of $1.1 Million, that standard was met.  In a long footnote, the Appellate Court questioned whether this was really the standard under Pennsylvania law, but did not have to deal with the issue, stating at the end:  “An insurer’s actions may arguably constitute bad faith whether a plaintiff makes a demand within the policy limits or not.  Here we need not reach the questions of whether Pennsylvania law imposes a bright-line rule, as the court instructed the jury that an expressed willingness to settle within the policy limits must be shown and the parties did not challenge the instruction.” 

The Third Circuit agreed with the trial court that there was enough evidence to find a bad faith failure to settle.  The adjuster’s testimony was particularly damning.  “He testified that Medical Protective’s refusal to offer more than $ 50,000 in a settlement was a ‘negotiating tactic’ – [the adjuster] thought by refusing to offer more money he could force the CAT Fund to offer more from [the other doctor’s] policy. This refusal demonstrated an abandonment of the fiduciary duty [the carrier] owed to [its insured doctor].  [The carrier] acted in its own self-interest rather than in the interest of [its insured doctor]. Such negotiating tactics do not provide a reasonable basis for failing to tender … policy limits.”

The Third Circuit added:  “”[U]nder Pennsylvania law an insurer does not comply with the good faith standard when it refuses to settle merely because it believes that its insured is not liable for the claim asserted. … [and the carrier] cannot satisfy its duty of good faith “merely by showing that it acted with sincerity.”

Date of Decision:  December 24, 2008

Jurinko v. The Medical Protective Company, Nos. 06-3519 & 06-3666, 2008 U.S. App. LEXIS 26263 (3d Cir. December 24, 2008) (Scirica, J.)

 

MARCH 2009 BAD FAITH CASES
CLASS CERTIFICATION DENIED BASED ON NEEDING INDIVIDUAL DETERMINATIONS ON BAD FAITH AND FIDUCIARY DUTY CLAIMS (Philadelphia Federal)

Published on March 13, 2009 in Procedural Issues. Closed

In Allen-Wright v. Allstate Insurance Company, the court denied class certification, finding that nearly every requirement for class certification was not met because each would have required an individual determination of class membership, thereby losing the efficiency of a class action.

The insured sought class certification for herself and similarly situated insureds in Pennsylvania who incurred real property damage that was covered for replacement cost, but for which the insurer was alleged to arbitrarily limit the general contractor’s overhead and profit (GCOP) to 5%, beginning in 2003.  The insured asserted claims for bad faith, alleging the insurer’s refusal to pay full benefits was unfounded and done out of self-interest, and for breach of contract and violation of the consumer protection law.

The insurer responded that it changed its pricing in 2003 and created a new class of claims, requiring a specialty contractor, to be paid at the lower percentage.  Claims requiring a general contractor were still paid at the industry rate for GCOP.

Class certification requires a class that is not defined too broadly but that also meets the requirements of numerosity, commonality, typicality, and adequacy.  To obtain class certification, you need predominance of the common question over any individual member’s issues, among other things.

Citing precedent, the determination of whether GCOP is appropriate is an individual and fact-dependant determination, and this would require the court to make individual determinations of class membership.

The court addressed bad faith, specifically, in two places.  It noted that the insured asked whether the 5% payment was done in bad faith as one of the questions it posed to demonstrate commonality; and the court evaluated bad faith under the predominance requirement.  In both instances, the court found that even if the insurer acted in bad faith with the representative insured, the court would have to review each claim to determine if the insurer acted in bad faith with the other proposed class members.

Similarly, the other two claims required individual determinations.  Notably, the court disagreed with the insured’s assertion that justifiable reliance already existed under the consumer protection claim because the insurer owed it a fiduciary duty.  The court found that there was no  fiduciary relationship generally between an insurer and an insured, an exception being when the insurer affirmatively assumes such a duty under a policy, e.g., by asserting a stated policy right to handle all claims against the insured, including the right to make a binding settlement.  Class certification was denied.

Date of Decision:  December 17, 2008

Allen-Wright v. Allstate Ins. Co., CIVIL ACTION No. 07-cv-4087, 2008 U.S. Dist. LEXIS 103272 (E.D. Pa. Dec. 19, 2008)(Joyner, J.)

 

On the conflicting views of what status an insurer holds, or does not hold, as a fiduciary under Pennsylvania law, see footnote 11 in Bauer v. Benefit Consumer Disc. Co., No. 07-247, 2007 U.S. Dist. LEXIS 88415 (E.D.Pa. Dec. 3, 2007), which states: 

The Court notes that the law in Pennsylvania regarding breach of fiduciary duty in the insurance context is unsettled. For cases recognizing a breach of fiduciary duty claim in limited insurance contexts, see Guthrie Clinic, Ltd. v. Travelers Indem. Co. of Illinois, No. 3:00 CV 1173, 2000 U.S. Dist. LEXIS 18727, 2000 WL 1853044 at *3 (M.D. Pa. December 18, 2000); General Refractories Co. v. Liberty Mut. Ins. Co., No. Civ. A. 97-7494, 1999 U.S. Dist. LEXIS 18932, 1999 WL 1134530 at *3 (E.D. Pa. Dec. 9, 1999) (holding that “federal courts interpreting Pennsylvania law recognize that breach of fiduciary duty is essentially a contractual claim”  and denying the defendant’s motion to dismiss on grounds that the plaintiffs had sufficiently pled the existence of a fiduciary duty) (citations omitted); Connors v. Metropolitan Life Ins. Co., 35 Pa. D. & C. 4th 58 (C.P. of Fayette County 1997) (denying motion to dismiss breach of fiduciary duty claim and holding that plaintiff’s claim that he relied on his insurer as “an advisor and counselor” gave rise to a fiduciary duty); Ihnat v. Pover, Part II, 146 P.L.J. 299 (Ct. Cmn. Pleas 1998) (holding that the relationship between an insurer and insured is essentially that of buyer and seller, and not a fiduciary relationship: “A fiduciary duty is ordinarily imposed only where one person, either by agreement or by law, has been entrusted to make a decision on behalf of another person.” The Court further held that the existence of a fiduciary duty in the insurance context occurred only in two narrow circumstances where the insurer took certain actions related to insured’s policy); Connecticut Indemnity Co. v. Markman, No. Civ. 93-799, 1993 U.S. Dist. LEXIS 10853, 1993 WL 304056 (E.D. Pa. August 6, 1993) (noting that “[t]he insurer assumes a fiduciary duty when it asserts a stated right under the policy to handle all  claims against the insured, including the right to make a binding settlement.”) (citations omitted).

For cases declining to recognize a breach of fiduciary duty claim in the insurance context, see Smith v. Berg, No. Civ. A. 99-2133, 2000 U.S. Dist. LEXIS 4513, 2000 WL 365949 at *4 (E.D. Pa. April 10, 2000) (providing that “under Pennsylvania law, insurers generally do not owe a fiduciary duty to their insureds”); Wood v. All-State Ins. Co., No. 96-4574, 1996 U.S. Dist. LEXIS 16332, 1996 WL 637832, at *2 (E.D. Pa. Nov. 4, 1996) (holding that plaintiff’s claim for breach of fiduciary duty is “subsume[d]” by plaintiff’s bad faith claim and thus “stricken as redundant”); Garvey v. National Grange Mut. Ins. Co., Civ. A. 95-0019, 1995 U.S. Dist. LEXIS 3283, 1995 WL 115416, at * 1 (E.D. Pa. March 16, 1995) (“Despite creative attempts by the Plaintiff to turn the insurance contract into a fiduciary relationship, Plaintiff’s complaint here alleges nothing more than a breach of contract based on good faith and fair dealing” and thus the Court dismissed said claim); Greater New York Mut. Ins. Co. v. North River Ins. Co., 872 F.Supp. 1403, 1409 (E.D. Pa. 1995) (“The Pennsylvania Supreme Court treats the breach of the contractual duty of good faith and breach of fiduciary duty synonymously  in the context of insurance cases. There is no common law tort action for bad faith or breach of fiduciary duty”) (internal citation omitted).

MARCH 2009 BAD FAITH CASES
BAD FAITH CLAIM NOT PRE-EMPTED BY MOTOR VEHICLE FINANCIAL RESPONSIBILITY LAW (MVFRL) WHEN CLAIM EXCEEDS SCOPE OF MVFRL (Middle District)

Published on March 9, 2009 in Procedural Issues. Closed

In Perkins v. State Farm Insurance Company, the court denied the insurer’s motion to dismiss the bad faith claim, ruling that the allegation of abusing the peer review organization (“PRO”) process exceeded the purview of PA’s Motor Vehicle Financial Responsibility Law (“MVFRL”) and was sufficient to state a bad faith claim.

This case arises from the insurer’s denial of first-party medical benefits under an automobile insurance policy for injuries sustained after the insured was struck by a motor vehicle while walking in a parking lot.  The accident occurred in January, 2005 and the insurer originally paid the medical bills.  In September, 2007, however, the insurer notified the insured’s chiropractor that it would not pay for any further treatments and requested reimbursement plus 12% interest for treatment dates January 26, 2006 through May 8, 2007.  It based its decision on a PRO evaluation which determined that Perkins’ treatment was no longer medically reasonable or necessary.

The insured filed for statutory bad faith, as well as for breach of contract, violation of the PA Unfair Trade Practices and Consumer Protection Law, and fraud.  The insurer moved for dismissal of most of the counts under Fed. R. Civ. Pro. 12(b)(6).  Its argument for the bad faith claim was that the statute is pre-empted by the MVFRL which is the exclusive remedy.

The court explained the relevant sections of the MVFRL, under which an automobile insurer must cover reasonable and necessary medical treatment. The penalty for unreasonably denying payment is to pay the benefit plus 12% interest and reasonable attorney fees.  Conversely, the insurer may be reimbursed plus 12% interest if treatment previously paid was not medically necessary.  To determine medical necessity, the insurer may submit the bills to a PRO.  The insured or provider may request reconsideration of an unfavorable PRO decision.  If the insurer did not use a PRO, the insured or provider may challenge the non-payment in court.

The PA Supreme Court has determined that an insured or provider does not need to ask for reconsideration of a PRO decision made under the MVFRL before filing in court but has not otherwise addressed the pre-emption issue.  This has resulted in mixed precedent.  The court rejected the view that the two laws are irreconcilable and that the MVFRL is the exclusive remedy for PRO process bad faith.  It, instead, the court adopted the reasoning that the MVFRL pre-empts the bad faith statute only when the claim is for denial of first-party medical benefits, not when the bad faith allegations exceed the scope of the MVFRL, e.g., for contract interpretation or not properly invoking or following PRO process.

Evaluating the motion for dismissal accordingly, the court found that one allegation – using a biased PRO that continuously denied benefits in order to maintain its business with the insurer – exceeded the scope of the MVFRL.  Although the court found this allegation to be “thin” it also found it to be sufficient to state a claim under the bad faith statute and therefore denied the insurer’s motion to dismiss the bad faith claim.

Date of Decision:  December 16, 2008

Perkins v. State Farm Ins. Co., CIVIL ACTION No. 3:08-CV-1084, 589 F. Supp. 2d 559, 2008 U.S. Dist. LEXIS 101931 (M.D. Pa. Dec. 16, 2008)(Jones, J.)

 

MARCH 2009 BAD FAITH CASES
INSURER GRANTED SUMMARY JUDGMENT ON INVESTIGATION, PAYMENT DELAY & UNDERPAYMENT, BUT DENIED ON INVESTIGATOR’S CONDUCT (Philadelphia Federal)

Published on March 8, 2009 in Claims Handling Procedures. Closed

In Aquila v. Nationwide Mutual Insurance Company, the court granted in part the insurer’s motion for summary judgment, allowing one component of one insured’s bad faith claim to continue to trial.  The surviving component relates to the manner in which the insurer’s investigation was conducted.  The insurer did not address this so the court was required to let it stand, even though the insured never responded to the summary judgment motion to present any evidence to support its allegation.

This bad faith and defamation case relates to the insured’s claim for benefits under his motor vehicle insurance policy for the theft and destruction of a covered vehicle and the ensuing investigation.  [A prior ruling dismissed all bad faith claims by a third plaintiff, the insured’s child; see BAD FAITH CLAIM DISMISSED BECAUSE THE PLAINTIFF, THE CHILD OF AN INSURED, LACKED STANDING posted on this site in January, 2009].

The court addressed the insured husband’s bad faith claims, construing three of the four components to be statutory and one part (seeking compensatory damages) as contractual bad faith, since the insured did not specify which law was at issue.

The bad faith allegations were that the insurer (1) conducted an unnecessary investigation, (2) improperly delayed making payment, (3) did not pay the full amount due, and (4) conducted the investigation in an unreasonable manner.  The court found that the insurer had acted reasonably under the first three components and was thereby entitled to have its motion for summary judgment granted on those components.

First, the investigation was reasonable because the existence of “red flags” is reasonable justification for an investigation and there were nine such “red flags” in this case, including a questionable manner and place of destruction and the insured’s financial situation (negative cash flow). 

Second, the payment delay was reasonable because it was at first due to the (reasonable) investigation taking place and subsequently due to lack of cooperation from the insured who, among other things, took more than five months to return a standard packet of materials to the insurer.

Third, the amount paid was reasonable because, although the insured sought replacement costs, he was paid actual cash value (minus deductible) as determined by an outside examiner; and the insured never challenged this report and never stated what the amount paid should have been.  The insurer reimbursed him for premiums paid during the investigation period and paid auto rental expenses pursuant to the policy.  The insured sought compensation in other amounts including for time spent finding and meeting with counsel and lost work time, but he did not cite a policy provision that covered such amounts, nor was the court able to identify any, so the court determined he was not entitled to them.

The final bad faith component was the manner in which the investigation was conducted.  Since bad faith claims may extend to conduct during the insurer’s investigation, the court considered the investigator’s alleged actions which included intimidation, insinuations of insurance fraud, and defaming the insured’s character.  Although the insured did not provide evidence of this conduct, the insurer never addressed it either.  Consequently, the insurer can not prove there is no genuine issue of material fact and the court denied summary judgment.

In so ruling, the Court did not address the argument, based on the Pennsylvania’s Supreme Court decision in Toy v. Metropolitan Life Ins. Co., that there can be no bad faith cause of action in the absence of a denial of a benefit (payment in first party claims, or defense and indemnification in third party claims).  The issue of courts failing to address this argument from Toy is addressed at more length in this post, found on this website. 

The court did, however, grant summary judgment to the insurer on all of the bad faith claims made by the insured ex-wife because, despite being an insured under the policy, she never filed a claim for the theft so she could not qualify as a bad faith plaintiff.

Date of Decision:  December 15, 2008

Aquila v. Nationwide Mut. Ins. Co., CIVIL ACTION No. 07-2696, 2008 U.S. Dist. LEXIS 101518 (E.D. Pa. Dec. 15, 2008)(Strawbridge, M. J.)

MARCH 2009 BAD FAITH CASES
EX-WIFE COULD NOT ASSERT BAD FAITH CLAIM WHERE SHE NEVER FILED THEFT CLAIM (Philadelphia Federal)

Published on March 8, 2009 in General Bad Faith and Litigation Issues. Closed

In Aquila v. Nationwide Mutual Insurance Company,

The court did grantED summary judgment to the insurer on all of the bad faith claims made by the insured ex-wife because, despite being an insured under the policy, she never filed a claim for the theft so she could not qualify as a bad faith plaintiff.

Date of Decision:  December 15, 2008

Aquila v. Nationwide Mut. Ins. Co., CIVIL ACTION No. 07-2696, 2008 U.S. Dist. LEXIS 101518 (E.D. Pa. Dec. 15, 2008)(Strawbridge, M. J.)

MARCH 2009 BAD FAITH CASES
SUMMARY JUDGMENT FOR INSURER; INSURED VOIDED POLICY THROUGH MATERIAL MISREPRESENTATIONS & PROVIDED NO EVIDENCE ON BAD FAITH CLAIM (Philadelphia Federal)

Published on March 2, 2009 in Reverse Bad Faith. Closed

In Excelsior Insurance Company v. Mitchell, the court was asked to reconsider its prior grant of summary judgment to the insurer.  It upheld its prior decision, finding that the insured voided the policy through material misrepresentations and submitted no evidence in support of its bad faith claim against the insurer.

The case relates to benefits the insured sought due to a fire at his business.  He included a claim for the cost of replacing his undamaged business sign, for which he submitted a forged damage report.  The insurer filed a complaint seeking a declaratory judgment and asserting breach of contract, breach of the implied duty of good faith, common law fraud, and violation of the state Insurance Fraud Act, 18 Pa.C.S.A. § 4117, et seq.  The insured subsequently filed in state court for breach of contract and bad faith, and the case was removed to this court and consolidated with the insurer’s case.

The court found that the insured voided his contract with the insurer in two ways: by knowingly submitting a false claim for undamaged property and by knowingly misrepresenting his financial situation at the time of the fire, both of which are material misrepresentations.  The court also found the insured to be liable to the insurer under the Insurance Fraud Act as a result of knowingly submitting the false claim for the sign.  The insurer’s other assertions were not addressed because the court had already determined that the policy had been voided.

The insured’s claim for bad faith was found to be unsubstantiated because he did not submit any evidence to support it.  The court determined that the insurer acted reasonably in investigating and refusing further payment, based upon the insured’s misrepresentations and the insurer’s suspicion of arson.  The insured’s other claim, for breach of contract, was barred by the statute of limitations.

The court, therefore, maintained its entry of summary judgment in favor of the insurer.

Date of Decision:  December 11, 2008

Excelsior Ins. Co. v. Mitchell, CIVIL ACTION No. 05-5987, 2008 U.S. Dist. LEXIS 100695 (E.D. Pa. Dec. 11, 2008)(Ludwig, J.)